Now, developers plan affordable homes for middle-class India

New Delhi: Joseph Pradeep Raj, who helps design communication programs with NIIT Ltd, a training company, is sorely disappointed. His dream of owning a house in Delhi was stubbed out when his broker told him that even a two-bedroom flat in a nice neighbourhood would cost him more than Rs65 lakh.

“My budget is Rs40-45 lakh. And I want a house in a decent area. But I don’t think I can afford a house at these prices,” he said.

Raj is one among the many buyers who constantly enquire with their brokers about affordable houses, only to be told that with each passing day, they are spiralling out of reach. “A lot of my customers enquire about houses in thesub-Rs40 lakh category. But there is just no supply of such houses in metros such as New Delhi,” says Deepak Kohli, director of Deep Realtors Pvt. Ltd, a real estate agency.

That may be about to change.

Recently, real estate player DLF Ltd, which made its name developing high-income housing in New Delhi’s southern suburb of Gurgaon, said it is looking at building homes that could sell for Rs40-50 lakh to fulfill the demand for middle- income housing. Initially, the company plans to build middle-income houses in cities such as Bangalore, Chandigarh, Chennai, Indore and Kolkata. These would be typically two-bedroom apartments and would cost Rs45-50 lakh.

“We will be focusing on middle-income housing,” DLF vice-chairman Rajiv Singh said at a press conference announcing the company’s first quarter earnings. The company will start work on the middle-income housing projects this quarter.

According to the Asian Development Bank, India will need 10 million new housing units a year by 2030. To meet this demand, leading developers are turning their focus to affordable homes.

Realty players are also turning to middle income houses to hedge the downside from a possible fall in demand for luxury homes. Interest rates, which are at a five-year high, and stock markets that have seen a rapid decline in values have sucked some of the loose cash out of the system.

“Too many enquiries come for houses in the Rs30-40 lakh range. But nothing is available now in the metros,” he added.

While there is demand for luxury apartments from non-resident Indians, Jha said they are not exactly selling like hot cakes. “There is demand for luxury homes from NRIs, but the pace at which these houses are sold is very slow.”

That explains why DLF, which recently launched luxury apartments in New Delhi priced at Rs8 crore, also wants to be in the high volume middle-income housing category.

“Middle-income housing is a volume game. And we will be expanding into other cities as well,” DLF’s Singh said.

DLF is expecting a revenue of Rs8,000 crore from middle-income houses once the project is on full steam.The company has already acquired land in New Delhi. The project will start in a couple of years. The company expects middle-income housing projects to account for 20 million sq. feet of the 50 million sq. ft it plans to develop every year thereafter.

DLF’s rival, Unitech Ltd, which is predominantly present in high-end apartments, is also looking at the middle-income segment, but in the tier II and tier III cities, not the top metros.

“If you ask me, it is not possible to build a middle-income house in a place such as Gurgaon, where the land cost is very high,” Unitech managing director Sanjay Chandra said on the sidelines of a press conference recently.

Gurgaon, which has become a fashionable suburb of New Delhi with swanky malls andapartments, has seen prices rise at least three times in as many years and apartments here can easily sell for Rs1 crore or more.

“Affordable housing is not possible in the National Capital Region and Gurgaon,” Kohli says. “Land price here is very high to build homes in the Rs40 lakh range.”

So, many developers are building affordable houses in smaller cities such as Indore, Jaipur and Coimbatore, where land prices are reasonable.

Smaller developers such as the Greencity Group of Companies and M-Tech Developers Pvt. Ltd are building houses costing less than Rs20 lakh in tier II cities such as Bhiwadi and Manesar.

Parsvnath Developers Ltd is building affordable houses in cities such as Rajpura, Moradabad, Dharuhera and Indirapuram, which are within half a day’s drive of New Delhi. Indirapuram, for instance, borders the Capital.

“We are fully aware that affordable housing constitutes the majority of business,” said B.P. Dhaka, a spokesperson for Parsvnath Developers. “Nobody can ignore the great Indian middle class.”

For Parsvnath, middle-income houses constitute 80% of its residential business.

In Rajpura and Jodhpur, Parsvnath is building two- and three-bedroom houses which will cost anywhere between Rs10 lakh and Rs20 lakh. The company is developing homes in this price range in othertier II and tier III cities as well. “It is much easier to build affordable homes in these cities, where space is available,” Dhaka said.

“The end cost of housing depends on the cost of raw material (land), which isvery high in the metro cities. But this is not the case in tier three cities.”

Also, there is a big shortage of housing across smaller cities, Dhaka said, adding that with shopping malls and office space coming up in these cities, there is suddenly a huge demand for housing in these cities. “We are trying to cater to this demand.”

According to Settlers India’s Jha, buyers are investing in smaller cities around New Delhi/NCR in the hope that prices will go up as infrastructure and township facilities develop in these cities.

“These cities are attracting investment from buyers who want to invest in property but can’t afford to do so in New Delhi,” Jha said. “They are investing with a futuristic view that some day property prices in these cities will increase.”